The hardest part of approaching the finish line

Our debt free journey has been a long one. We started our journey in 2008. It’s been a long seven years. Now that we are approaching the finish line, we have also entered the most difficult part of the journey, making it to the end.

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We started this marathon with over $220,000 in debt. We have paid off over $158,000. It started slow but as we cut our budget and increased our income, we started making huge progress. We faltered a bit after we paid off the credit cards but we got back on the track and started running again.

We have $62,071.23 left and it is becoming more difficult to stay motivated.

When we started our minimum required payments were over $2,000 per month. That was a tremendous amount of money, especially since we were making about half of our current income. Today, our minimum payments are $436.48.

It’s easy to get into a false sense of security. When I make those large debt payments every time we get paid, I think of all the things we could do with that money. $436.48 per month isn’t a lot. We could swing that even if one of us lost our job. We should ratchet up our savings, go on a trip, buy my husband a car. There are so many things we could do with that money rather than sending it to the stupid bank.

Then I remember the outstanding balance. $62,071.23 hanging over our heads. It’s like a weight holding us down. While $436.48 doesn’t seem like a lot of money, $62,071.23 sure is. It’s keeping us from fully following our dreams. It is risk that we just don’t want to have.

Next to my desk, taped to the wall is our debt snowball from when we got back on track in August 2013.

Debt snowball

 

It is a reminder every day to keep me on track. It not only reminds me where we are now, but also where we have been and how far we have come.

While I enjoy the sense of security that I have from paying down the debt, I’m fairly certain that I will love the sense of security when that debt is completely gone.

 

What happens when you get too excited about paying off debt

I’m starting to get excited. Really excited.

We are getting close to paying off another debt, my husband’s last student loan. I can visualize the zero balance. I’m getting super intense.

Too intense.

Last week, I started looking at the budget. We had money left in some of the categories: pets, medical, cleaning supplies, toiletries. I thought about the declining loan balance and got intense. I transferred those extra dollars to the line item for the debt an made a large payment which included that extra money. I had a bit of blow money left over and sent that as well. It wasn’t a tremendous amount of money but all the extra money added together was a nice extra bonus on the debt snowball.

And I forgot to look at the grocery budget. We had $19 left in the grocery budget and it had to last a week. Did I mention I was planning to make my husband’s birthday dinner this week? And we were out of bread. And milk. Oh yeah and Splenda (which we use to make iced tea which we drink every day). And coffee creamer. This was shaping up to be a bad week, especially if I couldn’t have coffee!

I could transfer a few dollars from somewhere to get us through the week. Oh wait. I just sent all that extra money to the student loan servicer. Yup. Bad week.

I was so excited to pay down the loan that I forgot that we might need food. Food is kinda important, right? Nah, it’ll be good for the diet. Yeah, not so much.

Don’t worry. We are not going to starve. I made some bread because we did have flour, yeast and dry milk. I also made some Italian bread. Both recipes were from the The Cook’s Illustrated Cookbook (which is my go to cookbook for just about everything). We had some chicken so I made grilled chicken and pasta.

My husband requested lasagna for his birthday dinner. My pantry is pretty low at the moment so the only thing I had on hand was jarred spaghetti sauce. No ground beef in the freezer. No lasagna noodles. I didn’t even have any mozzarella cheese (we almost always have mozzarella cheese in the house). I didn’t even have milk to make bechamel.

I went to Wal-Mart with my $19 to see if I could pull this together. The priority was coffee creamer, Splenda and lasagna ingredients. Of course, I walk through the door and see the most beautiful bananas that I’ve seen in months. I grab some hoping that there is some way on God’s green Earth that these will fit into my budget. I was fairly certain I was going to put them back. The grocery gods were with me on that trip. I got the last small bag of generic Splenda, which was the same unit price as the large bag but I didn’t have to spend almost half my budget. I also got the last marked down package of ground beef in the store.

With my bananas, the total was $18.68. I got everything on my list and got to take home my bananas. The lasagna was amazing. Husband was very happy about his birthday dinner. We had enough lasagna left over to make a second meal with it which we will probably eat on Tuesday (his actual birthday). I have some cheese left over so I’ll probably make chicken parmesan. We’ll also have breakfast for dinner and probably hot dogs. We certainly aren’t going to starve.

Seeing my grocery budget that low was a bit, no very unnerving. Before sending money to the debt snowball, I really need to slow down and make sure we’ve got enough money in the budget for everything we need. In the future, I’m going to make sure to wait until the last day of the budget before sending extra payments. Well, I’ll try my best.

Have you ever cut your budget so tight you were worried you wouldn’t make it? 

Take control of your spending!

There appears to be a stigma about budgets. It has become a dirty word to many.

People tell me budgets are restrictive. They can’t do what they want if they have a budget. A budget is limiting. It is controlling. 

Who would make your budget? Your mom? The mailman? The guy next door?

YOU make your budget!

Since you make your budget, you can put whatever you want into it.

Yarn habit? Yup!

Action figure collection? Sure!

Want to go on vacation? You can budget for that too!

The only limitation on your budget is your income. Now for some people that might be a problem. For the vast majority of people I council, they make enough money to pay all their bills and there is money left over.

It’s time to take control of your spending!

Where did all my money go last month?

Have you ever asked yourself that question? Those of us on a budget never need to ask that question because we made a spending plan before the money went out the door and tracked our spending during the month to ensure we stayed within budget.

A budget

Can you budget for fun things? Absolutely, just make sure your budget aligns with your goals.

If you read the blog, you know our goal is to get out of debt. But that is really just part of a bigger goal. My husband would like to transition out of his full-time job at 55 and focus on his passion. In order to do this, we need to pay off our debt so we can ramp up our retirement savings. We have chosen to make this a priority so we made the decision to cut back on other things.

Do we still budget for some fun stuff? Of course, but that budget is very small compared to our total income. We each get $50 per month for blow money (some people call it mad money). We can spend this on whatever we want. We also budget $100 per month for entertainment. This two items combined represent about 2.5% of our total budget. Typically, we don’t even spend it all, but it gives us breathing room to have a bit of fun while we are on this journey to become debt free. It also doesn’t stop us from achieving our goal. Currently about 50% of our take home pay goes toward our debt snowball.

What are your goals? Does your spending reflect those goals? If not, a budget could help you get there.

You can read more about how to construct a budget here.

Just remember that a budget is just a spending plan. You design it. You control where your money goes.

Using percentages to help stay motivated

If you haven’t yet figured it out, I’m a bit of a numbers geek. I am a Certified Public Accountant and my specialization is tax. Yes, I know. Most people would rather gouge their eyes out with a rusty spoon than do taxes and this is my chosen profession… but I digress. I am also the person in the household who does the monthly budget and maintains the snowball and the payoff schedules that go with it.

Yesterday, I made the first extra payment on one my husband’s student loan. It wasn’t a huge payment compared to the money we were throwing at the car and I got a bit discouraged. Then I realized that the payment I made was a pretty decent chunk of the balance. In fact, it was 8.2% of the balance (yes, I actually calculated it).

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The regular monthly payment is not even a fraction of a percent of the balance. I like 8.2%. Next month, when we make a full snowball payment, we are going to pay off about 50% of the remaining balance on that loan. I like 50% a lot better but I can live with 8.2% today.

The reason I can live with 8.2% is because we have made amazing progress. We paid off the car a few weeks ago. In the same budget month (remember we use the 28 day budget), I was also able to make a decent extra payment on one of husband’s student loans. Not a bad month and I’ve still got two weeks to scrape some extra money out of the budget. I’m hoping to get that 8.2% up to 10%. We’ll see how that goes.

Now for those of you who are following our debt snowball and are wondering how on earth I am going to pay off 50% of a $21,000 loan, husband’s total loan balance is actually two loans that we pay in one payment. The smaller loan has a balance of about $8,900, or at least it did before I made my snowball payment this month. My stretch goal is to knock that one out by April 15. It is a huge stretch but it’s tax season so it is mathematically possible. I’ll keep you posted.

The 28 Day Budget

28-day-budget

There are 12 months in the year but most of us get paid 26 or 52 times per year. There are these magical extra paychecks that we can put to use to help us achieve our goals, yet it never happens. But what if it could? What if we change the way we thing about budgeting to make those extra checks work for us? Welcome to the 28 day budget!